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Price increase in Argentina: "We have no choice but to live with inflation"

2022-01-16T20:35:48.012Z

Argentines fight to protect themselves from the rapid increase in prices, which climbed to 50.9% in 2021



One of the first images that the Argentinian Rocío Montaña preserves is a small cupboard full of packets of powdered chocolate. It was 1989 and she was six years old in the midst of Argentina's last hyperinflation, when prices rose 3,000%. Months ago her parents had collected a debt and spent the money on non-perishable food. "I don't know how they would have done with five children otherwise," says Montaña. This woman, a clerk in a takeaway restaurant, has not experienced such an extreme situation in her adult life, but like other Argentines she is accustomed — “we have no other choice,” she laments — to living with constant price increases.

In 2021, when many countries registered record inflation figures for the last decade, Argentina surpassed almost all of them but not itself. Last year, the consumer price index was 50.9%; in 2019 it had been worse: 53.8%. The data is five times higher than that of Brazil (10.06%), seven times that of Chile (7.2%) and multiplies by 50 that of Bolivia (0.9%), the lowest in the region. Only Venezuela, mired in a very serious economic crisis with hyperinflation, was above it, with increases close to 700% per year.

Family teachings left their mark on Montaña. In June and December, when he receives the Christmas bonus, he goes with his sister and brother-in-law to buy food and cleaning and hygiene products at a local wholesaler. This popular maneuver against inflation in Argentina is known as

estoquearse

. “If it were up to me I would buy meat, do you know how I would have won? But power outages scare me,” he says. The Government restricted beef exports in 2021, one of the star foods of the Argentine diet, and established price controls, but in this case it was useless: meat increased by 60.6% in one year, almost 10 points more than general inflation.

The

stock

can be food, but if they have more money, Argentines buy dollars, now also bitcoins, or invest in more expensive consumer goods: appliances, cars or, at the higher end, houses. In the last two cases, the values ​​are set in the US currency instead of pesos, the local currency, which is a double hedge against rapid price increases and devaluation.

“In the middle of 2020 I bought this motorcycle for 200,000 pesos [about 2,600 dollars at the official value at the time] and today I have it for sale for 350,000 [3,240 dollars],” says mechanic Claudio González. This 47-year-old entrepreneur also took advantage of a zero-rate state credit to buy wholesale oil and increase his profits. González assures that with inflation he has lost and gained a lot. "In 2001 I went bankrupt and then it was hard for me to trust the banks again," he recalls, referring to the economic crisis in the corralito, one of the most serious in Argentine history. That year the convertibility economic system that had tied the value of the peso to the dollar and had eliminated inflation was blown up.

The 2001 crisis, which resulted in 39 deaths in massive protests and the resignation of President Fernando De la Rúa, reopened the inflationary cycle.

The increase in prices began to accelerate during the second term of Cristina Fernández de Kirchner and peaked at the end of Mauricio Macri's term.

Having costs that increase almost 1% per week, on average, is a serious blow to the pockets of Argentines and is one of the main factors that explain the increase in poverty in recent years.

In 2017 inflation had been 25.7%.

A year later it almost doubled: 47.6%.

The following year, 53.8%.

In 2017, one in four Argentines had insufficient income to buy the basic food basket.

Two years later, this figure dropped to one in three.

From his workshop, located in the Buenos Aires neighborhood of La Paternal, González sees how the middle class has more and more difficulty making ends meet.

If their car breaks down, many cannot afford to repair it.

“The other day I had to change a piece for a client that cost 46,000 pesos (425 dollars).

Only the piece, without labor.

It was impossible, it was out of his budget”, he details.

Many parts are imported, which means that their price is in dollars and out of reach for many if one takes into account that the average salary of a salaried employee today in Argentina is 42,294 pesos.

If you take its equivalent in dollars (400), what Argentines earn on average per month is almost half the salary of Peruvians (791 dollars) and four times less than Panamanians, who lead the ranking.

multiple causes

The causes of high inflation in Argentina are multiple, but for orthodox economists they are summarized in the fact that the country spends more than it earns.

In the last 50 years, there have been six without a fiscal deficit, between 2003 and 2008, when the record price of raw materials generated a significant surplus.

To deal with expenses, successive governments have chosen to go into debt or resort to issuing money. The first strategy has ended in default nine times throughout Argentine history and the Executive of Alberto Fernández is now negotiating a restructuring with the International Monetary Fund to avoid the tenth

default

. Without access to international credit and with extraordinary expenses caused by the covid pandemic, in 2021 the State resorted to a record issuance of banknotes, which contributed to triggering inflation to 50.9%.

Other economists point to the exchange rate gap between the official dollar and the parallel dollar (close to 100%) and the Government also points to concentrated groups of power, with the ability to set prices. However, inflationary inertia also has a decisive influence. Accustomed to high inflation, companies hedge against possible increases in advance and raise prices to maintain their profits. The unions demand similar wage increases to sustain the purchasing power of the workers and a vicious circle is created that no government seems to know how to break.

“They are all thieves and corrupt”, Mountain vents.

The boredom of the population with this evil endemic to the Argentine economy is reflected in a growing mistrust of politicians and a drop in electoral participation.

González, in a couple with a Paraguayan, is considering emigrating to the neighboring country, considering that it has more economic stability.

70% of young Argentines would also prefer to move to another country, according to a survey by the private university Uade.

The lack of financial means or a final push prevents most from taking the plunge.

With such inflation it is not possible to plan anything in the long term, they lament.

It also forces them to keep their eyes peeled for any opportunity that might allow them to protect themselves or, hopefully, profit from it.

Source: elparis

All business articles on 2022-01-16

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